Reference no: EM132741804
Question - On January 1, 2020, Lahat Pasado Padin Company leased a Machinery to another entity with the following details, the Lease is treated as Direct Financing Lease:
Annual Rental Payable at the end of each year P400,000
Bargain Purchase Option P250,000
Useful Life 5 years
Lease Term 5 years
Interest Rate 8%
PV of Ordinary Annuity of 8% for 5 periods 3.9927
PV of Annuity Due of 8% for 5 periods 4.3121
PV of 1 of 8% for 5 periods 0.6806
Payments starts on December 31, 2020.
Required -
1. What is the Net Investment?
2. What is the Interest Income for 2020?
3. At the end of the Lease Term, the entity exercised its right to purchase the machinery, the fair value of the machinery at the time of exercise is 400,000, how much is the gain or loss?